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Wolverine (WWW) Q2 Earnings Beat Estimates, Revenues Rise Y/Y

Wolverine World Wide, Inc. WWW reported mixed results for second-quarter 2022, wherein the bottom line beat the Zacks Consensus Estimate, while the top line missed the same. The top line increased year over year, while the bottom line dipped. Quarterly results benefited from brand strength, higher international sales and gains from direct-to-consumer (DTC) revenues. Supply-chain disruptions and macro challenges acted as deterrents.

Shares of this currently Zacks Rank #3 (Hold) stock have fallen 21.2% in the past six months compared with the industry’s decline of 35.9%.

Q2 Insights

Wolverine posted second-quarter adjusted earnings of 66 cents a share, dipping 1.5% from the year-ago quarter’s level but surpassing the Zacks Consensus Estimate of 64 cents.

Revenues of $713.6 million lagged the Zacks Consensus Estimate of $740 million but increased 12.9% year over year, courtesy of healthy international sales and brand strength. Excluding Sweaty Betty, revenues increased 5.4% year over year to $666.2 million. On a pro-forma basis, Sweaty Betty’s revenues of $47 million declined 23% year over year and 11% in constant currency.

WWW’s international business was robust in the reported quarter and improved 45.3% to $295.2 million, including Sweaty Betty. This was backed by robust demand in the organic business. Excluding Sweaty Betty, revenues at the international business grew 26.4% year over year to $256.8 million. Wolverine’s third-party distributor business surpassed expectations and grew 36%. However, sales were stressed in the United States, where revenues slipped 2%.

Foreign exchange rates hurt revenues to the tune of $19 million or three percentage points. Also, sales were adversely impacted by headwinds, such as elevated wholesale channel inventory and certain lingering supply-chain delays.

We note that Wolverine Michigan Group’s revenues rose 10% year over year to $389.7 million, while Wolverine Boston Group’s revenues dipped 1.6% to $253.9 million. Other revenues jumped to $70 million from $19.5 million in the year-ago period.

In the reported quarter, Merrell revenues climbed 14% year over year to $203.6 million, Saucony revenues grew 7.2% to $135.5 million, Sperry revenues decreased 13.4% to $70.1 million and Wolverine revenues rose 16.3% to $57.7 million. Sweaty Betty generated revenues of $47.4 million.

Including Sweaty Betty, DTC revenues advanced 21.1% year over year to $166.2 million. Excluding Sweaty Betty, DTC revenues fell 8.2% to $125.9 million. Wolverine saw softness in the e-commerce channel, where revenues dropped 7% on an organic basis year over year and increased 20%, including Sweaty Betty. Changing shopping behavior with consumers partly returning to in-store shopping and shifting toward experiential spending might have hurt sales. Since 2019, the organic business has nearly doubled, and including Sweaty Betty, e-commerce as a rate of global sales is roughly 20%.

Margins

Gross profit was $307.2 million, almost flat year over year. However, gross margin contracted 150 basis points (bps) year over year to 43% due to an increased mix of international distributor shipments and supply-chain costs. This was partly offset by higher selling prices and royalties, and the contribution from Sweaty Betty.

Adjusted SG&A expenses jumped 13% to $228.5 million on higher variable costs. Excluding Sweaty Betty, SG&A as a rate of revenues improved 180 basis points.

Adjusted operating profit dipped 1.1% year over year to $78.7 million, while adjusted operating margin decreased 160 bps to 11%. Excluding Sweaty Betty, adjusted operating margin was 12.2%.

Other Financials

Wolverine ended the quarter with cash and cash equivalents of $149.3 million, long-term debt of $727.4 million and stockholders' equity of $661.8 million. Total debt was $1,227.4 million at the end of the reported quarter. WWW had total liquidity, including cash and available borrowings under its revolving line of credit, of nearly $700 million.

Inventory at the end of the reported quarter was $639.5 million, reflecting an increase of 93% year over year. Excluding Sweaty Betty, organic inventory rose 80% from the prior-year period’s level.

In the second quarter, Wolverine had repurchased 2.4 million shares at an average price of $19.47 per share. WWW had $367 million available under the share buyback plan.

Outlook

Wolverine updated outlook for the second half of 2022, given various factors like a few negative trends accelerating in June. Management anticipates a stronger US dollar, inflation, higher inventory across channels and evolving consumer behavior to witness a significant negative impact. On the supply-chain side, product delays have been disrupting the flow of inventory for a while, although this is likely to improve in the second half.

Although Wolverine cut its margin outlook for the second half, management is persistently taking actions to lower costs and boost efficiencies. In addition, WWW intends to relaunch stores in 2023.

Revenues are now projected in the range of $2.740-$2.790 billion, representing growth of nearly 14-16%. Foreign currency exchange rate fluctuations are expected to hurt revenues to the tune of $72.0 million or 3%.

Brandwise, Merrell is anticipated to deliver above 30% revenue growth in the third quarter and an increase in high teens for 2022. Saucony is focused on enhancing market share globally across road and trail running categories, alongside expanding the lifestyle Originals business. Management expects Saucony to deliver low single-digit revenue growth for the third quarter and mid-teens growth for the year. Further, Sperry’s revenues are predicted to increase by mid-single-digits in both the third quarter and during the whole year.

Gross margin is likely to be 42.5%, considering the increased promotional and markdown cadence, and an elevated mix of lower-margin international third-party sales. Operating margin is expected to be 11.5%, while adjusted operating margin is forecast to be 9.5%, induced by higher promotional and inventory-handling costs.

Earnings per share are expected between $2.62 and $2.72, while adjusted earnings per share are likely to come in the bracket of $2.10-$2.20, indicating growth of 0.5-5.3% year over year. Currency is likely to hurt the metric to the tune of 11 cents a share.

Eye These Solid Picks

Here we highlighted three better-ranked stocks, namely Designer Brands DBI, G-III Apparel GIII and Capri Holdings CPRI.

Designer Brands designs, manufactures and retails footwear and accessories. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Designer Brands’ current financial-year revenues and earnings per share (EPS) suggests growth of 6.9% and 16.5%, respectively, from the corresponding year-ago reported figures. DBI has a trailing four-quarter earnings surprise of 102.5%, on average.

G-III Apparel designs, sources and markets apparel and accessories under owned, licensed and private label brands. The stock currently flaunts a Zacks Rank of 1.

The Zacks Consensus Estimate for G-III Apparel’s current financial-year revenues and EPS suggests growth of 13.8% and 8.2%, respectively, from the comparable year-ago reported figures. G-III Apparel has a trailing four-quarter earnings surprise of 97.5%, on average.

Capri Holdings, a global fashion luxury group, consisting of iconic brands, such as Versace, Jimmy Choo and Michael Kors, carries a Zacks Rank #2 (Buy) at present. CPRI has an expected EPS growth rate of 11.3% for three-five years.

The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 3% and 9.8%, respectively, from the corresponding year-ago reported numbers.


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Wolverine World Wide, Inc. (WWW): Free Stock Analysis Report
 
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